Washington, D.C. -
Ten major banks agreed Monday to pay $8.5 billion to
settle federal complaints that they wrongfully foreclosed on homeowners who
should have been allowed to stay in their homes.
The banks, which include JPMorgan Chase, Bank of America and Wells Fargo,
will pay billions to homeowners to end a review process of foreclosure files
that was required under a 2011 enforcement action. The review was ordered
because banks mishandled people's paperwork and skipped required steps in the foreclosure
process.
The settlement was announced jointly by the Office of the Comptroller of the
Currency and the Federal Reserve.
Separately, Bank of America agreed Monday to pay $10.3 billion to
government-backed mortgage financier Fannie Mae to settle claims related to
mortgages that soured during the housing crash.
The agreements are the banks' latest step toward eliminating hundreds of
billions of dollars in potential liabilities related to the housing crisis that
crested in 2008. When they release fourth-quarter earnings later this month,
the banks hope to reassure investors that they are making progress toward
addressing those so-called legacy claims.
But advocates say the foreclosure deal allows banks to escape responsibility
for damages that might have cost them much more. Regulators are settling at too
low a price and possibly at the expense of the consumer, they say.
"This was supposed to be about compensating homeowners for the harm
they suffered," said Diane Thompson, a lawyer with the National Consumer
Law Center. The payout guidelines already allowed wronged homeowners less
compensation than the actual damages to them, she said.
Under the settlement, people who were wrongfully foreclosed on could receive
from $1,000 up to $125,000. Failing to offer someone a loan modification would
be considered a lighter offense; unfairly seizing and selling a person's home
would entitle that person to the biggest payment, according to guidelines
released last summer by the OCC.
The agreement covers up to 3.8 million people who were in foreclosure in
2009 and 2010. All will receive some amount of compensation. That's an average
of $2,237 per homeowner, although the payouts are expected to vary widely.
About $3.3 billion would be direct payments to borrowers, regulators said.
Another $5.2 billion would pay for other assistance including loan
modifications.
The companies involved in the settlement also include: Citigroup, MetLife
Bank, PNC Financial Services, Sovereign, SunTrust, U.S. Bank and Aurora. The
2011 action also included GMAC Mortgage, HSBC Finance Corp. and EMC Mortgage
Corp.
The deal "represents a significant change in direction" from the
original, 2011 agreements, Comptroller of the Currency Thomas Curry said in a
statement.
Banks and consumer advocates had complained that the loan-by-loan reviews
required under the 2011 order were time consuming and costly without reaching
many homeowners. Banks were paying large sums to consultants who were reviewing
the files. Some questioned the independence of those consultants, who often
ruled against homeowners.
Curry said the new deal meets the original objectives "by ensuring that
consumers are the ones who will benefit, and that they will benefit more
quickly and in a more direct manner."
"It has become clear that carrying the process through to its
conclusion would divert money away from the impacted homeowners and also
needlessly delay the dispensation of compensation to affected borrowers,"
Curry said.
Thompson agreed that the earlier review process was deeply flawed and said
the move toward direct payments is a positive development. But she said the
deal will only work if it includes strong oversight and transparency
provisions.
"It's another get out of jail free card for the banks," said
Thompson. "It caps their liability at a total number that's less than they
thought they were going to pay going in."
Citigroup said in a statement that the bank is "pleased to have the
matter resolved" and believes the agreement "will provide benefits
for homeowners." Citi expects to record a charge of $305 million in the
fourth quarter of 2012 to cover its cash payment under the settlement. The bank
expects that existing reserves will cover its $500 million share of the
non-cash foreclosure aid.
Bank of America CEO Brian Moynihan said the agreements were "a
significant step" in resolving the bank's remaining legacy mortgage issues
while streamlining the company and reducing future expenses.
Leaders of a House oversight panel asked regulators for a briefing on the
proposed settlement on Friday. Regulators refused to brief Congress before
announcing the deal publicly.
Maryland Congressman Elijah Cummings, the top Democrat on the House
Committee on Oversight and Government Reform, said in a statement that he was
"deeply disappointed" in the regulators' actions.
"I have serious concerns that this settlement may allow banks to skirt
what they owe and sweep past abuses under the rug without determining the full
harm borrowers have suffered," Cummings said. He said regulators have
failed to answer key questions about how the settlement was reached, who will
get the money and what will happen to others who were harmed by these banks but
were not included in the settlement.
The settlement is separate from a $25 billion settlement between 49 state
attorneys general, federal regulators and five banks: Ally, formerly known as
GMAC; Bank of America; Citigroup; JPMorgan Chase and Wells Fargo.
Daniel Wagner can be reached at www.twitter.com/wagnerreports .
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